A Cosmic Theory and 2-Inch Lump of Gold Spur 500% Novo Surge

Explorer posits he found the largest gold source’s lost twinCompany assessing nuggets scattered across Australia holdings

Quinton Todd Hennigh has spent 13 years scouring the Earth for clues to back a hunch: that the world’s biggest gold resource has lost siblings elsewhere on the planet.

Now the president of Novo Resources Corp. thinks he may have found a counterpart of South Africa’s Witwatersrand in the ancient red rocks near Australia’s northwest coast. In July, his company zeroed in on a gold find that’s confounded geologists and sparked a 500 percent surge in the explorer’s share price.

The first test on land south of the coastal town of Karratha looked good. Employing two men, a metal detector and a jack hammer, Vancouver-based Novo extracted gold nuggets as long as 4 centimeters (1.6 inches) from an exploration “trench” little more than a half-meter deep. That tiny sample hinted atore grades that could be among the highest of any operating mine in the world.

Hennigh, 50, who’s worked as a geologist for Newmont Mining Corp. and Newcrest Mining Ltd., isn’t screaming bonanza yet. “Can I say 100 percent that this will turn into a mine right now? No, I don’t know,” he said in a phone interview, acknowledging hard work remains to determine if watermelon seed-like specks of gold can be economically mined.

Still, the potential upside is seen by some as huge.

‘Bunch of Nuggets’

“If it’s true, this is massive,” Brent Cook, a Rockville, Utah-based geologist and mining stock analyst who booked a flight to the site three days after Novo announced the discovery. For the moment, though, the company’s valuation — C$703.6 million ($559.5 million) — is “just absurd,” says Cook. “We’ve only got a concept, one small excavation, and nuggets scattered across hundreds of kilometers. It could turn out to be a bunch of nuggets that are only good for fossickers,” he says, using industry slang for prospectors.

Such caution has failed to damp the euphoria driving Novo, whose backers include the world’s second-largest gold producer Newmont and billionaire precious-metals investor Eric Sprott. Sumitomo Corp. is partnering with Novo to study a site further east in a deal that could lead to the Japanese trading house taking a stake in the company.

Novo rose 8.5 percent to C$5.90 at 9:39 a.m. in Toronto, bringing its gain this year to 638 percent.

Hennigh’s theory is that Karratha and the surrounding Pilbara region is a long-lost scrap of the Earth’s crust once conjoined to Witwatersrand — a massive underground belt of gold and other minerals in South Africa that’s supplied more than 2 billion ounces, or about one-third, of the yellow metal ever mined by man.

“Pieces of the Witwatersrand basin may sit in some unexpected places,” says Michiel de Kock, head of the University of Johannesburg’s geology department. Magnetic records found in rocks indicate Western Australia’s Pilbara and the Witwatersrand region might have been “nearest neighbors within a larger supercontinent.”

Gold Debate

How the Witwatersrand became so rich in gold has long been debated among geologists. The most commonly accepted theory is that gold washed out of mountain ranges accumulated in a basin. But others have questioned that, saying there’s simply too much of it — erosion alone doesn’t explain the source of all that metal.

Hennigh began exploring the idea in 1993 for his doctoral dissertation at the Colorado School of Mines. His hypothesis was that the Witwatersrand was once covered by acidic seas that could dissolve gold. The emergence of photosynthetic life — blue-green algae spewing oxygen into the atmosphere — changed that chemistry, forcing gold to precipitate out of seawater.

That belief would influence how Hennigh looked for gold. Where others saw coarse sedimentary rocks of little interest, he saw potential: they might hide an ore-rich layer formed by a primordial seafloor.

Hennigh’s research funding was pulled by its sponsor, South African miner Gold Fields Ltd., and went unpublished. But he took his ideas in the mid-2000s to Newmont, where he refined his theory and began to consider the breakup of an ancient continent. Could deposits similar to Witwatersrand have drifted elsewhere?

‘Few Places’

“There are very, very few places where we have rocks that old: there’s a bit in Australia, a piece in South Africa, a piece in India and a piece in Brazil,” Hennigh says. “It’s very difficult to work in India, the piece in Brazil turned out to be too small to be of interest. By default, it was Australia that ended up being the main focus.”

Hennigh left Newmont, formed Novo, and teamed up to stake out acreage with legendary Australian prospector Mark Creasy, whose fortune began with a A$130 million ($103 million) payout in 1994 for two gold discoveries in Western Australia. Newmont snapped up a 36 percent stake in Novo in 2013 and remains the largest shareholder. Newmont declined to comment. Sprott, the second-biggest investor, wasn’t available for comment.

“I’ve always believed there’s a reasonable chance that we have an undiscovered Witwatersrand-style of gold in this part of the world,” Creasy, 72, said by phone from Perth. But for years, those lands were held by explorers looking for base metals and only became available again recently, he says. Furthermore, the belief that gold precipitated out of seawater would “alter, to a certain extent, where you’d go looking” — in coarse amalgamations of pebbles and boulders, known as conglomerates.

Eye on Karratha

The Pilbara is already known for iron ore; its enormous deposits supply iron-ore giants BHP Billiton Ltd., Rio Tinto Group and Fortescue Metals Group Ltd. In its search for gold, Novo initially focused on the eastern Pilbara, laying claim to about 1,000 square kilometers (386 square miles). But a gold rush beginning last September among local prospectors to the west of that area trained Hennigh’s eye on Karratha. He immediately suspected the rounded nuggets fossickers were picking out of conglomerates were part of a more continuous bed of gold dipping into the ground and extending a long way.

“It’s not the kind of thing that many people think would host gold, and that might go a long way toward explaining why this thing wasn’t discovered,” Hennigh said. “We jumped all over it and started staking land as quick as we could,” expanding Novo’s holdings to some 12,000 square kilometers, close to the size of Connecticut.

According to Hennigh, that patch of Australia has been bouncing around the planet for some 3 billion years and somehow escaped the collisional tectonics that have folded and deformed most of the Earth’s crust.

‘Scratched my Head’

“It’s one of the strangest geologic settings I’ve ever seen,” says Cook, who has consulted for major mining companies. “I’ve scratched my head a lot.”

One of the bigger questions facing Novo is how much waste rock it will have to plough through to recover gold. Novo has C$15 million in cash and expects it could raise another C$30 million from warrants issued to investors to push ahead with a complex assessment, Hennigh said.

Investors are expecting Novo to release some initial assessments over the next six months that could provide clues as to how continuous a gold deposit it may be. If the results are good, it may be enough to bring a major partner to help like Newmont or Newcrest, Cook says.

In the meantime, the jury is out on whether Novo’s geological theory is correct, said Richard Schodde, managing director of Melbourne-based MinEx Consulting, an industry adviser on exploration. “But why argue about models when you’ve got gold as evidence.”

“If it pays off, it’ll pay off in spades, and the market is obviously sharing their enthusiasm on this project,” Schodde says. “Though there’s clearly a long way to go before South Africa has to worry about being over-taken by Western Australia.”